Source: Transnet, TRANSNET PENSION FUND AMENDMENT BILL, 2006 Select Committee on Labour and Public Enterprises, Cape Town 13 February 2007

Source: Transnet, Table of Contents Background Rationale for Amendment Bill Purpose of Bill Proposals to limit impact Principles behind the Amendments Achieved Result Amendments in Bill Conclusion

Source: Transnet, Background Previous Transnet Funds: –Railways and Harbours Pension Fund for Black employees; and –Railways and Harbours Superannuation Fund These were merged into the Transnet Pension Fund established i.t.o Transnet Pension Fund Act, 1990 (“Act”) as a defined benefit fund (the employer guarantees the employee’s pension amount on retirement) all Transnet employees obliged to be members of the Transnet Pension Fund Act amended in 2000 to establish two new funds: –Transnet Second Defined Benefit Fund for Transnet pensioners, also a defined benefit fund which has been closed from 2000; –Transnet Retirement Fund, a defined contribution fund (pensions amount on retirement depends on employees’ contributions and is not guaranteed) for all new Transnet employees from 2000

Source: Transnet, Background (cont.) Most Transnet employees voluntarily transferred from Transnet Pension Fund to the Transnet Retirement Fund (effective 1 Nov 2000) The Transnet Pension Fund is an existing fund and its members consist of all those members who are not pensioners and who did not transfer to the Transnet Retirement Fund The Transnet Pension Fund has been closed to new members since 2000, and now has approx members, including pensioners who retired after the establishment of the Transnet Second Defined Benefit Fund

Source: Transnet, Introduction The Transnet funds have some benefits under the Income Tax Act as paragraph (a) funds because they are established by statute Thus when a member leaves employment the portion of her/his lump sum benefits attributable to membership prior to 1 March 1998 may not be taxable Transnet’s restructuring includes the disposal of its non-core assets, including the transfer of its shares in SAA to Govt and the transfer of some of its business units (eg Metrorail) to other public entities (such as SARCC) or private sector entities (transfer of internal audit to Ernst& Young)

Source: Transnet, Impact of Transnet Restructuring Termination of TPF membership for employees in Transnet businesses transferring to other public entities or the private sector Transferring employees to join pension funds of new employers If the new employer’s pension fund is not a paragraph ‘a’ fund established by statute (i.a.w Income Tax Act definition), employees tax benefit for membership obtained prior 1 March 1998 vests on exit

Source: Transnet, Proposals to limit impact In April 2006 Transnet, DPE and Labour agreed: –to allow certain SOE employees continued membership in the Transnet Retirement Fund (“TRF”) –to restructure the Transnet Pension Fund (“TPF”) into a multi- employer fund to allow continued membership of specific employees This preserves the tax treatment of the benefits of existing fund members and ensures that no member is worse off than the status quo Transnet Pension Fund Act amendments (“Amendments”) are required to accommodate this agreement The draft Amendments have been approved by Transnet, the trustees of the three Transnet pension funds and Cabinet The draft Amendments are published in Government Gazette No , 1 September 2006

Source: Transnet, Principles of the Amendments The Transnet pension fund - –remains a closed defined benefit fund and is restructured into a multi-employer fund; –will have stand-alone sub-funds and appropriate new governance structures The Transnet Retirement Fund – –remains a defined contribution fund –Allows existing members to retain their fund membership even after transfer of the business to a new SOE employer Transnet Second Defined Benefit Fund –remains a closed defined benefit fund and is unchanged

Source: Transnet, Principles of the Amendments (TPF) TPF still one legal entity Now an independent multi-employer fund Renamed the “Transport Pension Fund” SOE employers (to whom Transnet businesses have been disposed of) may join as a Principal Employers One Sub-Fund per Principal Employer Sub-Funds automatically consist of active members Sale agreements determine allocation of Pensioner and Dependant Pensioner members to Sub-Funds The relevant liabilities, assets, rights and obligations allocated to the Sub-Fund are determined by the Trustees, the fund valuator and actuary/ies Sub-Funds have clearly defined “ring-fenced” liabilities and assets Each Principal Employer alone only guarantees its own Sub-Fund

Source: Transnet, Principles of the Amendments Principle of separation of sub-funds (with ability to work together) Two sets of rules –general rules control governance, allocation of costs and statutory matters –special rules control service, contributions and benefits Two levels of trustees –sub-fund boards manage all aspects of the sub-funds as determined by the special rules (incl. investment policy and administration of benefits and assets) –Board of Trustees (“Board”) duty to control the governance of the fund as a whole and to allocate costs where necessary

Source: Transnet, Board of Trustees Executive Committee Audit / Risk Committee Investment Committee Fund Administration Strategic Asset Management Illustration – old TPF Structure

Source: Transnet, Board of Trustees Sub Fund Committee Executive Committee Audit / Risk Committee Investment Committee Fund Administration Strategic Asset Management Sub Fund Committee Executive Committee Audit / Risk Committee Investment Committee Fund Administration Strategic Asset Management Illustration – new TPF Structure

Source: Transnet, Principles of the Amendments (TRF) TRF to remain in principle a “Transnet fund” Not a multi-employer independent fund However, SOE employers (to whom Transnet businesses have been disposed of) may also join as participating employers effectively allowing existing employees of these SOE employers to remain members of the TRF No new SOE employees to join TRF

Source: Transnet, Achieved result The benefits and tax treatment available to fund members is maintained On disposal, new employer will guarantee the defined benefit exposure of employees opting to remain in the TPF

Source: Transnet, Portfolio Committee Revisions Revisions aimed at simplifying the Bill, ensure constitutionality of the Bill and consistency with other legislation Committee Report states that Committee believes it was not appropriate for it to decide on whether or not new SOE employees should join the TRF SATAWU and SARWHU (representing the majority of Transnet workers) agreed that new SOE employees should not be included in the TRF and that this exclusion can be set out in the Bill UTATU and AUSA still held their views, but decided not the pursue the matter further during this legislative process.

Source: Transnet, The Amendments To amend the Transnet Pension Funds Act, 1990, with effect from 11 November 2005 (to align with TRF and TPF rule amendments) DEFINITIONS to amend definitions for consistency and to insert new definitions as required SECTION 2 (Disestablishment of old funds, establishment of TPF) deletion of old section replace with a “purpose” clause to assist in interpretation and understanding of the Act SECTION 3 (Obligations payable from revenue) allowing for proportionate allocation of this obligation between employers, with Ministerial oversight in case of dispute

Source: Transnet, The Amendments SECTION 4 (Rights and obligations of members and beneficiaries) deletion of old section new wording to provide for transfer of rights and obligation at the establishment of the TPF in 1990 SECTION 4A (Division of TPF into Sub-Funds) On commencement of Amendment Act, TPF will be divided into sub-funds establishes sub-funds from date of introduction of new Principal Employer Sets out procedure for assignment of active members to sub-funds assignment of Pensioners and Dependant Pensioners by way of agreement between Seller and Purchaser Establishes sub-fund boards and minimum requirements for the special rules which shall govern the sub-funds as well as powers and duties of the sub-fund boards transfer of liabilities, assets, rights and obligations determined by Board and actuary/ies provide for transfers between sub-funds

Source: Transnet, The Amendments SECTION 4A (division of TPF) cont. Sets out powers and duties of TPF Board of Trustees, including allocating to each sub-fund benefits, costs, losses or liabilities incurred by the TPF and attributable to each sub-fund Provides for general rules for the governance and management of the TPF; including the allocation of costs, administration, valuation and audits of the TPF deleted initial approval and publication of rules as this requirements has been met General Rules may be amended by the trustees with the approval of all Principal Employers or majority of Principal Employers and the Minister of Public Enterprises Special Rules may be amended by the sub-fund board with the approval of the applicable Principal employer If in the opinion of the TPF valuator an amendment may affect either to the general or the special rules may affect the financial condition of the TPF or any sub-fund, the Ministers of Public Enterprises and Finance must approval the amendment Both general rules and special rules are binding

Source: Transnet, The Amendments SECTION 4A (Division Of TPF) cont. If the sub-fund assets are insufficient to pay for benefits due to members, pensioners etc., the Principal Employer is liable to the TPF for payment of such benefits Limits employer’s liability to the TPF to liabilities attributable to members etc. assigned to that employer’s sub-fund

Source: Transnet, The Amendments SECTION 6 (Actuarial evaluation) to provide trustee appointed valuators at intervals of not more than 3 years to provide for the valuation of each Sub-Fund of the TPF as if it were a separate entity expands application of reporting requirements Moves guarantee clause to Section 5(12) and Section 12 SECTION 7 (Benefits not assignable) includes deduction from benefits of amounts to be deducted in terms of the Maintenance Act SECTION 8 (How pension are affected by insolvency) expands concept of pension to a “benefit including an annuity” clarify exclusion of benefit from insolvent estate

Source: Transnet, The Amendments SECTION 9 (Recovery of debts) no material changes (at requested of TPF) SECTION 10 (Application of benefits iro housing debts) to allow for deductions of amounts owing to third parties (Not just employer) who provide housing finance backed by fund guarantees necessary to facilitate non-core disposal SECTION no material changes SECTION 13 (Registration … of Pension Funds Act)

Source: Transnet, The Amendments SECTION 14 (Employees of Employer group) to reflect that TPF is only for persons who were members of the fund as at “effective date”, and who will become employed by an SOE following the disposal by Transnet of non-core assets and businesses to the SOE, which new employer, or which holding company of the new employer has become approved as a new Principal Employer to reflect that after the commencement of the Amendment Act, the TRF is only for Transnet employees

Source: Transnet, The Amendments SECTION 14A (Power to establish Pension Funds) no material changes SECTION 14B (Establishment of TSDBF) TSDBF Rules may only be amended by TSDBF Board of Trustees and approved by Transnet If an amendment is likely to affect the financial condition of the TSDBF, it must be approved by the Ministers of Public Enterprises and Finance Minister of Public Enterprises may publish a notice in the Government Gazette and determine which of the persons currently receiving a pension from Transnet must receive such pension from TSDBF and the pension cannot be less favourable than at present SECTION 15A (Power to make regulations) to give the Minister the power to make regulations in terms of the Act, and provide for matters related or incidental to such matters

Source: Transnet, Conclusion The Amendments form part of Transnet’s restructuring, and protect benefits of existing TPF members affected by the restructuring by legitimising the continued membership of the fund by SOE employees